Personal Finance

How tariffs on Canada, China and Mexico may impact U.S. consumers

Published

1 month ago

January 31, 2025

Business Finance News

President Donald Trump on Jan. 27, 2025 in Doral, Florida.

Joe Raedle | Getty Images News | Getty Images

President Donald Trump has repeatedly discussed imposing tariffs, both on the campaign trail and since taking office — and the first tranche, on goods from Canada, China and Mexico will take effect Feb. 1, the White House confirmed on Friday.

While there are still some unknowns, one thing is clear, economists said: U.S. consumers should brace for a negative financial impact.

It’s “hard to find positives” from tariffs, said Mary Lovely, a senior fellow at the Peterson Institute for International Economics, whose research specializes in trade with China and global supply chains.

Trump plans to put 25% tariffs on Mexico and Canada, and a 10% duty on China, Karoline Leavitt, the White House press secretary, said Friday.

China, Mexico and Canada are the three largest trading partners with the U.S., as measured by imported goods. They respectively supplied about $536 billion, $455 billion, and $437 billion of goods to the U.S. in 2022, according to the Office of the U.S. Trade Representative.

President Trump to impose 25% tariffs on Canada and Mexico on Feb. 1

Tariffs are a tax on foreign imports. U.S. businesses pay that tax to the federal government.

Many businesses will funnel those extra costs to customers — either directly or indirectly — which is why tariffs generally trigger higher prices for consumers, economists said.

“Part of these tariffs will be passed on to consumers,” Lovely said.

Americans could also find they have fewer choices for brands and products stocked on store shelves, she said.

Exemptions may ‘limit the damage’ to consumers

There are still many question marks over the looming tariffs on Canada, China and Mexico.

For example, it’s unclear if any imports will be exempt. Trump suggested this week, for example, that Canadian oil might be exempt. The White House said the tariffs will be open for public inspection on Saturday.

Discussions around such specifics are “ongoing,” a White House official told CNBC Friday morning.

Auto stocks will be hit hard by Trump's proposed Canada & Mexico tariffs, says RBC's Tom Narayan

“There are always exemptions and carve-outs,” said Mark Zandi, chief economist at Moody’s.

Trump might try to “limit the damage to the U.S. consumer” via those exemptions, Zandi said. For example, he could choose not to impose duties on apparel from China, avocados from Mexico or cheese from Quebec, he said.

Debates about economic impact

The White House expects tariffs and Trump’s broader economic agenda to benefit the U.S. economy.

Trump imposed tariffs during his first term that — along with tax cuts, deregulation and energy policy — “resulted in historic job, wage, and investment growth with no inflation,” White House spokesman Kush Desai said in a written statement.

During his second term, Trump will use tariffs again to “usher in a new era of growth and prosperity for American industry and workers,” Desai said.

A 25% Canada-Mexico tariff and 10% China tariff would raise about $1.3 trillion in revenue through 2035 on a net basis, the Committee for a Responsible Federal Budget estimates. That revenue may be used to partially offset the cost of tax cuts, a package that might cost more than $5 trillion over 10 years.

However, a 10% additional tariff on China would shrink the U.S. economy by $55 billion during the Trump administration’s second term, assuming China retaliates with its own tariffs, according to an analysis by Warwick McKibbin and Marcus Noland, economists at the Peterson Institute for International Economics.

A 25% tariff on Mexico and Canada would cause a $200 billion reduction in U.S. gross domestic product, they found.

Meanwhile, economists expect more tariffs in the future.

On the campaign trail, Trump floated a 10% or 20% universal tariff on all imports and a tariff of at least 60% on Chinese goods, for example.

A 20% worldwide tariff and a 60% levy on Chinese goods would raise costs by $3,000 in 2025 for the average U.S. household, according to an October analysis by the Tax Policy Center.

“Broad-based, universal tariffs and the damage they will do is not really a debate,” Zandi said. “They will do damage. It’s just a question of how much and to whom.”

How tariffs may impact consumers

Consumers can pay for tariffs both directly and indirectly, economists said.

Tariffs on China would likely have such the largest direct impact on consumers — the bulk of what China exports to the U.S. is consumer goods like apparel, toys and electronics, Zandi said.

China is the “dominant supplier” of toys and sports equipment to the U.S., and provides 40% of its footwear imports, and 25% of its electronics and textiles, according to a recent analysis by PIIE economists.

Mexico and Canada tariffs would also “put upward pressure on food prices,” according to PIIE economists.

The nations are “important sources” of vegetables, accounting for 47% of total U.S. imports, and prepared foodstuffs (42%), for example. Transportation equipment and machinery, electronics and fuel are other sectors that stand to be most impacted, they found.

“The U.S. imports roughly 40% of its crude oil, with Canada as the dominant supplier,” Nigel Green, CEO of deVere Group, a financial consulting firm, said in a written statement.

“If oil is hit with tariffs, the impact could hit energy markets, pushing up costs for businesses and consumers,” Green wrote.

However, domestic energy producers, certain U.S. manufacturers and other industries “could see short-term gains from reduced competition,” he added.

Indirectly, U.S. producers might raise their prices because they face less foreign competition for certain goods, Lydia Cox, an assistant professor of economics at the University of Wisconsin-Madison, said during a recent webinar.

U.S. companies that use tariffed goods to manufacture their products might also raise prices for downstream goods, Cox said. For example, steel tariffs might lead to higher prices for cars, heavy machinery and other products that use steel.

Tariffs ‘create a lot of collateral damage’

Other nations might also respond with retaliatory tariffs that start a trade war, which might cause U.S. producers to lose sales abroad, she said.

“Unlike Canada and Mexico, for which retaliation would be inconceivable, China has retaliated in the past and would likely do so again,” PIIE economists wrote recently.

Further, tariffs may have the unintended consequence of destroying jobs, economists said.

Their ability to create U.S. jobs is “vastly, vastly overstated,” said Lovely of PIIE.

Take steel, for example. There are 80 workers in jobs in industries that use steel as an input for every one job that produces steel, Cox found in a recent paper.

Tariffs create “a lot of collateral damage along the way,” which is why economists warn against broad-based use, Cox said.

Personal Finance

Treasury Department halts enforcement of BOI reporting for businesses

Published

1 hour ago

March 3, 2025

Business Finance News

The US Treasury building in Washington, DC, US, on Monday, Jan. 27, 2025.

Stefani Reynolds | Bloomberg | Getty Images

The U.S. Department of the Treasury on Sunday announced it won’t enforce the penalties or fines associated with the Biden-era “beneficial ownership information,” or BOI, reporting requirements for millions of domestic businesses.

Enacted via the Corporate Transparency Act in 2021 to fight illicit finance and shell company formation, BOI reporting requires small businesses to identify who directly or indirectly owns or controls the company to the Treasury’s Financial Crimes Enforcement Network, known as FinCEN.

After previous court delays, the Treasury in late February set a March 21 deadline to comply or risk civil penalties of up to $591 a day, adjusted for inflation, or criminal fines of up to $10,000 and up to two years in prison. The reporting requirements could apply to roughly 32.6 million businesses, according to federal estimates.

The rule was enacted to “make it harder for bad actors to hide or benefit from their ill-gotten gains through shell companies or other opaque ownership structures,” according to FinCEN.

In addition to not enforcing BOI penalties and fines, the Treasury said it would issue a proposed regulation to apply the rule to foreign reporting companies only.

President Donald Trump praised the news in a Truth Social post on Sunday night, describing the reporting rule as “outrageous and invasive” and “an absolute disaster” for small businesses.

Other experts say the Treasury’s decision could have ramifications for national security.

“This decision threatens to make the United States a magnet for foreign criminals, from drug cartels to fraudsters to terrorist organizations,” Scott Greytak, director of advocacy for anticorruption organization Transparency International U.S., said in a statement.

Greg Iacurci contributed to this reporting.

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Personal Finance

Trump ‘gold card’ visa may attract rich college applicants from abroad

Published

2 hours ago

March 3, 2025

Business Finance News

New York University graduates walk through New York’s Washington Square Park on May 9, 2021.

Alexi Rosenfeld | Getty Images

For years, restrictive student visa policies in the U.S. have been a drag on college enrollment among international students. President Donald Trump’s proposed “gold card” could change that for some wealthy college hopefuls.

While the details of the initiative remain unclear, experts say the gold card visa program could offer these students from overseas a path to citizenship in return for $5 million.

“Over the past 24 hours, we received an unusual influx of inquiries from students in China, Korea and India because of Trump’s gold card visa,” Christopher Rim, president and CEO of college consulting firm Command Education, said Thursday, two days after Trump first floated the idea.

“Now these wealthy international students have a clear path of staying in the country after graduation,” he said.

Currently, there are more than 1.1 million international undergraduate and graduate students in the U.S., mostly from India and China, making up slightly less than 6% of the total U.S. higher education population, according to the latest Open Doors data, released by the U.S. Department of State and the Institute of International Education.

“It’s a relatively small cohort but these policies can have great value,” said Robert Franek, editor-in-chief of The Princeton Review.

International enrollment is an important source of revenue for schools like New York University and Columbia University, which is why colleges tend to admit more foreign students, who typically pay full tuition, according to Franek.

“We know those students are incredibly attractive because they are not applying for financial aid,” he said.

In fact, “more than 95% of four-year colleges in the U.S. are tuition driven,” Franek said. “For schools dependent on students paying tuition, we know this [visa option] is going to be a benefit.”

Altogether, international student enrollment contributed $43.8 billion to the U.S. economy during the 2023-2024 academic year, according to a separate report by NAFSA: Association of International Educators.

A spotlight on college access

However, Trump’s proposed gold card also comes at a time when college access is increasingly in the spotlight.

“Clearly those families that can afford it will take advantage of that, but I don’t know what the net long-term effect on higher education will be,” said James Lewis, co-founder of the National Society of High School Scholars, an academic honor society.

“We certainly want to make college accessible for everyone,” he said.

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Higher education already costs more than most families can afford, and college costs are still rising.

Tuition and fees plus room and board for a four-year private college averaged $58,600 in the 2024-25 school year, up from $56,390 a year earlier, the College Board found. At four-year, in-state public colleges, it was $24,920, up from $24,080.

For far more families, financial aid is crucial when it comes to covering the cost of college, and particularly for students from low-income, first-generation or minority backgrounds.

Personal Finance

Who benefits from Trump Tax Cuts and Jobs Act extension

Published

6 hours ago

March 3, 2025

Business Finance News

Speaker of the House Mike Johnson (R-LA) leaves after the House passed Republicans’ budget resolution on the spending bill on Feb. 25, 2025 in Washington.

Kayla Bartkowski | Getty Images News | Getty Images

As Congress debates how to handle trillions of dollars in expiring tax breaks, lawmakers on both sides have been lobbing claims about which consumers will see the biggest benefits from extending them. Economists and tax experts say the answer isn’t so straightforward.

In short: Who benefits depends on your frame of reference.

House Republicans passed a budget plan Tuesday that lays the groundwork to extend the Tax Cuts and Jobs Act, a package of tax cuts enacted in 2017 during President Trump’s first term.

Many of the cuts for individual taxpayers will expire after 2025 unless Congress acts — and the GOP can do this with a simple majority vote in Congress by using a special legislative maneuver called budget reconciliation.

Rep. Richard Neal, D-Mass., ranking member of the House Ways and Means tax committee, said Wednesday that Republicans’ policy plan — central to which is an extension of the Trump tax cuts, estimated to cost more than $4 trillion — amounts to a “reverse Robin Hood scam” that gives to the rich and takes from the poor.

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Meanwhile, Republicans say low- and middle-income households stand to win under the plan.

“Extending the Trump tax cuts delivers the biggest relief to working-class Americans and small businesses in a generation,” Rep. Jason Smith, R-Missouri, chairman of the Ways and Means Committee, said Tuesday.

Experts say both sides’ arguments have merit.

“The interesting thing is both can be true, depending on how you interpret what they’re saying,” said James Hines, a law and economics professor at the University of Michigan and research director in its Office of Tax Policy Research.

The Trump law cut taxes for most people

President Trump speaks about the passage of tax reform legislation on the South Lawn of the White House on Dec. 20, 2017.

Saul Loeb | Afp | Getty Images

The Tax Cuts and Jobs Act lowered taxes for most U.S. households, experts said.

The legislation was broad, benefiting Americans across the income spectrum — which is broadly consistent with Republicans’ claims, they said.

Changes like a larger child tax credit and an expanded standard deduction cut income taxes for many low and middle earners, while lower marginal tax rates and tax deductions for business owners largely helped the wealthy, experts said.

If TCJA provisions are extended, 62% of tax filers would see lower tax bills in 2026, compared to if the measures expire, according to the Tax Foundation. (Put another way, many people’s tax bills would increase next year without an extension.)

With those provisions in place, Americans would get a 2.9% boost in income after taxes in 2026, on average, according to the Tax Foundation. Income would rise by 3.4% if factoring in broader impacts of the tax cut on the U.S. economy, it said.

A U.S. Treasury Department report issued in the waning days of the Biden administration had a similar finding: The average person would get a 2.2% tax cut by extending the Trump law. (Its estimate is for the 2025 budget year.)

All income groups would get a boost in after-tax income, Treasury said.

The rich are the ‘biggest winners’

U.S. House Minority Leader Hakeem Jeffries (D-NY), joined by Rep. Pete Aguilar (D-CA) and Rep. Katherine Clark (D-MA), delivers remarks after the House passed Republicans’ budget resolution on the spending bill on Feb. 25, 2025.

Kayla Bartkowski | Getty Images News | Getty Images

However, with an extension, the largest tax cuts would accrue to the highest-income families, Treasury said.

Household in the top 5% — who earn over $450,000 a year, roughly — are the “biggest winners,” according to a July 2024 analysis by the Urban-Brookings Tax Policy Center. They’d get over 45% of the benefits of extending the Tax Cuts and Jobs Act, it said.

A Penn Wharton Budget Model analysis on the impacts of the broad Republican tax plan had a similar finding.

The bottom 80% of income earners would get 29% of the total value of proposed tax cuts in 2026, according to the Wharton analysis, issued Thursday. The top 10% would get 56% of the value, it said.

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This dynamic speaks to Democrats’ arguments, especially when coupled with possible spending cuts for programs like Medicaid and food stamps. Such programs largely benefit lower earners.

Wharton estimates that the combination of tax cuts and spending reductions for programs like Medicaid and food stamps would leave “low-income households worse off,” even after accounting for economic growth.

Some tax analysts view after-tax income as among the best frames of reference to assess policy impact, because it estimates how much a household’s buying power improves. Others disagree, however, saying it’s hard to control for other economic variables that might alter income.

The top 1% of households (who make about $1 million or more a year) would get a 3.2% boost in after-tax income in 2027 via an extension of the Trump law, the Tax Policy Center said. In dollar terms, their tax savings would be about $70,000, on average.

By comparison, middle-income households, would get a 1.3% income boost, or a $1,000 tax cut, according to the Tax Policy Center.

The rich ‘pay most of the taxes’

In a sense, this dynamic is to be expected because the U.S. income-tax system is progressive, experts said. That means high earners generally shoulder more of the overall tax burden than low earners.

“If you ask, ‘Who gets the dollars,’ it’s mostly rich taxpayers,” said Hines of the University of Michigan. “But that’s because it’s a tax cut and they pay most of the taxes.”

The top 1% paid 40% of all U.S. income taxes collected in 2022, according to a recent Tax Foundation analysis. The bottom 90% paid about a quarter — 28% — of total income tax.

“Democrats say most of the tax dollars went to the rich: They’re absolutely correct,” Hines said.

However, the TCJA cut taxes more for working families than rich families on a proportional basis, a White House spokesperson said.

Experts agreed with that assessment.

“Republicans say, ‘But the cuts were not slanted to the rich compared to how much people were paying originally,” which is also generally correct, Hines said.

President Donald Trump holds up a copy of legislation he signed before before signing the tax reform bill into law in the Oval Office Dec. 22, 2017.

Chip Somodevilla | Getty Images News | Getty Images

For example, the bottom 50% of Americans saw their average federal tax rate fall by 15% from 2017 to 2018, after the Trump tax cut took effect, according to the Tax Foundation. (Their rate fell to 3.4% from 4%.)

By contrast, the top 1% saw their average rate decline by a lesser percentage (about 5%) during that period, to 25.4% from 26.8%.

“The reason why the debate is so fractured is there are elements of truth to both sides,” said Garrett Watson, director of policy analysis at the Tax Foundation. “It’s a battle of metrics, and what weight to place on each of them.”